In the cannabis industry, there are a lot of potential liabilities, which are obligations to pay for damages you cause someone else to suffer.
For instance, the law generally says that any party in the chain of manufacturing or distribution of a product can be held liable for damages the end-user suffers from that product. Businesses also have a liability for damages sustained by anyone visiting their premises.
Depending on what type of business you have, you might be thinking, “No one ever comes on my property except for me and my employees.” As crazy as it sounds, selected courts around the country have held property owners liable for injuries sustained by a trespasser. There is a famous case from the Midwest that dates back several decades involving a man who set up a shotgun in his home that could be triggered by a break-in. His contraption — which in my mind sounds like something Wile E. Coyote would have concocted to catch the Road Runner — actually worked, shooting a burglar in the leg. The burglar sued the man for damages and won.
Imagine some thieves trying to gain access to your grow facility getting seriously injured by the razor wire at the top of the fencing. Or an intruder getting bit by a guard dog kept on the premises. Should you have to pay them? While most rational business people would say no, the answer, unfortunately, might be yes.
Of course, businesses are also liable if a delivery driver or somebody running an errand for the business is involved in an at-fault collision. Automobile liability is a major source of lawsuits in America, which is why every state requires drivers to carry some type of liability coverage on their vehicles.
The bottom line is there are a lot of ways businesses can get sued. This is where liability insurance comes in. This fundamental type of insurance is designed to pay damages to third parties who sue you (or who could potentially sue you). Businesses desperately need this coverage in at least three forms: general liability, automobile liability, and workers’ compensation and employer’s liability.
Let’s suppose someone tries to break into your property and gets injured. They find a lawyer and file a lawsuit. What do you do?
Even though this sounds like a presumably frivolous lawsuit, you can’t just send the judge a note that says, “Are you kidding me?” You still have to respond in a legally appropriate manner. You’ll need a lawyer, and even really inexpensive lawyers charge $250 an hour. For good representation on the West Coast, you could be looking at $750 an hour or more. Just getting a lawyer up to speed on the case could cost you thousands of dollars. One of the reasons you need liability insurance is because it pays for the lawyer.
I know someone who was sued years ago for something that was really frivolous. The case was ultimately settled without her having to pay the plaintiff a penny in damages, but that was only after she spent $75,000 on an attorney. Thankfully, she had liability coverage, which paid every penny of the attorney’s fees.
Please note that insurance companies don’t just let people pick out an attorney who will run up a big bill. Insurers may choose the attorney or provide their own. But still, you have representation that you don’t have to pay out of pocket for and that’s a good thing.
States typically require licensed cannabis businesses to carry liability insurance; all states require all drivers to carry auto liability insurance; and all but the very smallest businesses also have to carry workers’ compensation insurance. But even without the legal requirements, it makes sense for businesses to carry these coverages anyway, given the fact that insurance picks up the cost of settling and resolving even frivolous claims.
Brenda Wells, Ph.D., is the Robert F. Bird Distinguished Professor of Risk and Insurance at East Carolina University and the owner of Risk Education Strategies. She has published articles on the risk management implications of cannabis legalization and is an expert in the risk management and insurance field. She can be reached at firstname.lastname@example.org.